Advice will hit thousands of homeowners with a stealthy tax grab
Hundreds of thousands of homeowners are at risk of being hit by a stealthy municipal tax hike after rental units were quietly reassessed for the tax.
The Telegraph may reveal that large rental homes that are rented out piece by piece are being reclassified into several smaller properties. In a five-bedroom house, this means that five sets of Council Taxes will be due rather than a single charge.
Government figures show that 500,000 of these so-called ‘multiple occupancy homes’ (HMOs) in England could be affected.
Activists said they were inundated with calls from concerned landlords.
Penny Mourdaunt, trade minister and MP for Portsmouth North, criticized the trend and called on the government to intervene to prevent housing supply from being affected.
“It’s a growing problem and it’s arbitrary,” she said.
The revaluations have taken place largely in areas with the highest number of rental properties, and experts said this suggests councils are looking to reclassify properties to boost income.
Ian Fletcher, from the British Property Federation, an industry body, said: “Local authority budgets have been squeezed for over a decade so they need ways to get more money. It there’s only one way for revaluations and that’s up.”
With HMOs, landlords typically pay bills and council tax, then pass on a single monthly charge to their tenants. If council tax increases, landlords must absorb the cost or pass it on in the form of higher rents.
Daryn Brewer, 43, a landlord and developer in Portsmouth, is letting a six-bedroom property to tenants. The Assessment Office Agency told her it had been reclassified into six separate dwellings, which meant the total council tax bill for the property had quadrupled from £1,821 to £7,287.
“It looks like poll tax. It’s an absolute mess,” Mr Brewer said.
Portsmouth is among the top 20 local authorities in the country for large rental properties.
Councils do not classify properties themselves for tax purposes. But Chris Daniel, a housing consultant, warned that cash-strapped councils were able to send HMOs back to the assessment office to be reclassified as multiple properties.
Calli Robertson, 47, owns 15 properties in Peterborough. The council tax bill on one of his five-bedroom houses quadrupled from £1,300 a year to £4,890. It was upgraded to five one-bed houses, although three of the bedrooms did not have attached bathrooms and none had cooking facilities, she said.
The council tax jump meant Ms Robertson had to raise the rent for the cheapest room by 23 per cent.
Alan Murdie, of Council Tax Legal Services, a specialist consultancy, said: ‘The cases are piling up.
Mr Murdie said there had been particular spikes in east and west London, Coventry and Birmingham. These areas all have high proportions of rental units that are rented room by room.
Wendy Whitaker-Large, owner and activist, said: “A year and a half ago I was getting calls about this every few months. Now it’s two or three times a week. He is about to explode.
In some cases, similar properties on the same street had been classified differently for council tax purposes.
Ms Whitaker-Large said: ‘It completely destroys the market and puts owners at a massive disadvantage. Some landlords think they have to foot the bill or the tenants will leave.
She said a landlord in Hertfordshire had declared bankruptcy after the reclassification of his two 12-bedroom properties.
A spokesman for the Valuation Office, part of HM Revenue & Customs, said its approach to large rental homes had not changed. He said: “Multiple Occupancy Homes (HMOs) are fully assessed on the individual characteristics and adaptations of each dwelling.
“The amount of tax that any appraisal will yield is not a consideration.
“Assessments are based on the principles set out in the Local Government Finance Act 1992 and its subordinate regulations and are the same for all national properties.”